9-8-09

 
9-8-09
Badlands Journal
The price of dirt, Part 1...Badlands Journal editorial board
http://www.badlandsjournal.com/2009-09-07/007400
Part 1.
“Put your faith in the people who have been here from the beginning and have always paid their taxes while others come and go and cost us all money.” – Diana Westmoreland Pedrozo, executive director, Merced County Farm Bureau
Late in the afternoon of the August 18 Merced County budget bloodletting before the board of supervisors, Aldo Sansone, 77, a fixture in Westside landowner circles, rose to his feet. Sansone told the supervisors not to cancel a state subsidy to agriculture called the Williamson Act just because the state would not backfill the loss in property taxes to the county in the coming year. By that time in the budget hearing the board had laid off between 89-111 employees and eliminated 130 vacant county jobs. Sansone told a story, presumably for the purpose of convincing the supervisors of the goodness of Merced farmers. In 1942, he said, the military condemned more than 500 acres of his father’s vineyards and built Castle Air Force Base on it. He said his father got some money for his grape crop but nothing for the land. His father, an immigrant, didn’t speak English well, he said. He did not say that his father came from a country at war with the US at that time. While this was a misfortune for his family; on the other hand, US armed forces in the Pacific were not doing well in 1942. But others gave more than land to that war. We could not see the link between this military condemnation of farmland and the loss of a property-tax reduction for farmers that the county only approved 35 years after the Williamson Act became law in California. 
Sansone explained that the problem with politicians was that they didn’t think like “business individuals.” He, like all the other members of the elderly and middle-aged farmers, urged the supervisors to prohibit any new Williamson Act subsidies to farmers but not to terminate existing contracts.
Today, 85 percent of Merced homeowners are upside down on their mortgages – they are making payments on mortgages for home prices that have fallen as far as 70 percent in three years. This has had, as they say, a negative impact on property-tax revenues to the county. In 2005, Merced was considered to have had the second most overpriced housing market in America – houses selling for 77 percent more than they were worth. Today, every city in the county is ringed with unfinished subdivisions in which many houses are vacant as the result of foreclosure. Banks are refusing to put some 4,000 homes in some stage of foreclosure on the market for fear of driving prices down even farther.
Against the claims of good faith of the tax-paying farmers, that “agriculture is the county’s economic engine,” and that Merced’s farmers have heroically protected their precious agricultural land, there is this: although the US military in wartime had the power to condemn the Sansone vineyards for war purposes, neither developers nor local government (without negotiated compensation under eminent domain) had the power to condemn farmland for subdivisions and strip malls during the speculative real estate bubble that has burst. The farmers were willing sellers of the dirt on which the speculative real estate boom was constructed and they made a killing: the price for that dirt was better than anything the farmer could make off it by farming. Every acre of land in this Valley has always been for sale at a price, as everybody knows, none better than its agricultural landowners.
After years of experience, we have never seen an example of more perfect agribusiness and county-government hypocrisy and deceit than the hearing on whether the county should pick up the agricultural subsidy called the Williamson Act at the same time as it was laying off scores of county workers, most of them in health and human services, in an economy now shrinking at the velocity at which it once bubbled.
It wasn’t by accident that the north San Joaquin Valley went through one of the most exaggerated real estate speculative booms and busts in the nation. We have often in these pages talked about a seamless blend of corruption and incompetence among our leaders. In this case, they entirely surrendered their roles as political leaders to a “free-market” ideology that allowed finance, insurance and real estate (beginning with local landowners) special interests to ruin the local economy. Both the cities and the county could have extracted higher fees from developers. UC itself admitted it was trying in court to get out from under $200 million in infrastructure improvements that it has not yet begun to pay. We will be paying for years for the lack of local political leadership because, in fact, they behaved exactly like “business individuals” Sansone talked about. They had valuable votes on land-use issues. We don't really suggest that, like "business individuals," they actually sold their votes. But, they certainly contributed them to a speculative real estate bubble that history had shown in the past and would show again would crash. We understand it is absolutely beyond politicians and government to admit errors in judgment. This policy of denial of responsibility, however, leads to evermore contorted “reasoning.”
Introduction.
County CEO Dee Tatum set the scene for the board: The County will be laying off between 89-111 people and deleting 130 vacant positions for a total of 219 employees. There will be 76 layoffs in health and human services, where there are already 41 vacant positions. Staff is asking the board to eliminate 130 already vacant positions.
The worst of these layoffs are due to cutbacks in state funds for local programs and Tatum said there will be more cuts. Both state and local revenues from property taxes and sales taxes have shrunk dramatically since the end of the bubble.
Tatum’s salary has increased by 64 percent since 2001 to $261,000 in the last fiscal year, the Merced Sun-Star reported earlier this year. He is the highest paid employee in the county. He emphasized that his office did not make the cuts; he requested that the department heads do that.
Mr. Tatum’s assistant, Jim Brown, said that the county is in negotiations with unions at the moment, therefore it is impossible to anticipate any future reductions in costs, from, for example, work furloughs and reduced wages.
Giving more detail about the situation, Brown said the total shortfall was $44.3 million from tax losses, state reductions (human services, health mental health etc), $7 million in Human Services (CalWorks), $7 million mental health (drug and alcohol), and more reductions are expected in Prop 1A education funds, and finally, the Williamson Act. Locally, the county has reduced spending by $8 million in long-range projects and $9 million in vacant positions and in staff reductions. 
Kristy Waskiewicz, representing Local 2703 of the American Federation of State, County and Municipal Employees (AFSCME) , told supervisors the county had not bargained in good faith with its employees, had not looked at all the options before laying off people and that for a start, supervisors should return the $500,000 per year in discretionary funds they spend on projects in their districts. Tatum noted later that the amount had been reduced by 35 percent; each supervisor would only received $65,000 in discretionary funds per year.
Brown replied that there would be no union negotiations in public and proceeded to lay out the county’s position: it is under statutory deadline to prepare a budget at this time, whether in negotiations or not, and that county staff estimated that furlough days and “budget reduction” days would save between $3-4 million only, and the shortfall is $1.5 million. “It will have to be a multi-year reduction that will require many other reductions,” he said.
A young man from Community United by Empowerment (CUBE), Sam Gonzales, gave the supervisors and the general public a preview of that it means to gut the social safety net in a county where 35 percent of the population – and more are in need every day – is on some form of public assistance: “It may be a money matter to the state but you have to thing about the crime rate and all that professional stuff. It wouldn’t be fair to kids, kids who don’t have a say in this … Everybody doesn’t have parents and other things that they need ... It keeps people safe, from harming themselves and doing things that aren’t really that smart, if you start it you should let it finish, if you start something, people get used to it, they start counting on it when they need something,”
One of Gonzales’ companions said that without CUBE he would not have enough to eat.
In fact, we learned later that CUBE had been preserved, with staff reductions.
The supervisors had postponed the public comment period in which the public can talk about general questions from its usual place at the beginning of the meeting and people we lined up to speak on various issues. Chairwoman Deidre Kelsey ended the comments on the consent item agenda, which was passed unanimously.
The next three items on the agenda dealt with policy issues. Assistant CEO Brown pointed out that the board, as a matter of policy, had instructed staff that if the state makes reductions, the staff is not to propose backfilling the reductions. CEO Tatum followed Brown’s comment by promising that we would “see this very democratic process at work” as the board decided what to do about the state’s withdrawal of funds to help the county pay for the property-tax reductions for farmers from the Williamson Act. In fact, the county backfilled the Williamson Act reductions for wealthy farmers, while slashing mercilessly the budgets for health and human services for the sick and the needy.
Karen Adams, an elected official who directs an absurd jumble of departments as the result of a reorganization last year -- Adams is, simultaneously the Tax Collector, County Treasurer, County Clerk, Registrar of Voters and in charge of the Revenue and Reimbursement department – requested that the four permanent positions (three supervisory) that will be cut not be deleted, just held vacant, “so that finally someday I can complete the functional realignment advised by your outside consultants for the Registrar of Voters/Election Department.” She added that these hardships were foreseeable, that she’d requested last year not to do this departmental consolidation until a vision was properly included in the resolution. “I am especially thankful that I am an elected official paying taxes today,” she said.
Merced County should not have an understaffed, dysfunctional elections department next year with two open seats in the state Legislature and what is beginning to look like a serious challenge to the congressional seat, in addition to local government races that can be decided by very narrow margins.
A retired county worker spoke bluntly to the supervisors: “Given the economy out there, do absolutely everything – furloughs, work reductions, before you lay off workers.”
Director of Human Resources, Robert Morris replied that, “Reduction in force is always heart-wrenching” but laid all the blame on the department heads for the actual selection of the layoffs. But, he said, if the board approves the layoffs, the county would help them with Human Services support (if there’s anybody in the department left to help), and if the economy improves they would be preferred applicants for their old jobs from 18 months to three years “if they met the minimum qualifications and passed an interview.”
Waskiewicz, the union rep, made of her best of many statements during the hearting: “You’ve repeated the verbiage of ‘having exhausted all options short of lay offs,’ -- I’ll repeat mine: all options have not been followed. There have not been good faith meetings with us regarding other options.
“You’re proposing to lay off eight land-fill workers, guys with more than 20 years of county service, many not close to retirement age yet. How many could be saved with furloughs or other cost-savings measures. You don’t know because you haven’t looked at it yet.
“The public health lay offs are scary. Flu season plus swine flu are coming. There has already been one death from swine flu in Merced County and surrounding counties have had several. What are you going to do if we really get hit with the flu? You’re also proposing to lay off hazmat and environmental health staff: You’re talking public safety, which is not just sheriff, but any threat to health and safety of the public. Where is the concern for the public?
“We should be bearing the brunt of the worst economy any of us has ever seen together, but we’re not. You’re putting it all on our backs. You’re laying off the people that keep this county going.
“Going after people in services before you look at other options is not a balanced approach. You are failing in your obligation to do what’s best for the residents and employees of this county. We keep hearing how you don’t want to do this but have to. How do you know if you haven’t explored all options? Before you can look all these people in the eye and say you’ve looked at every option – and you can’t – you shouldn’t lay off any of them.”
A county social worker said that her program for teenage pregnancy and young mothers costs $21 million a year and saves the county $120 million and has taken Merced from dead last in teen pregnancy to 51st out of the 58 counties. “Stanislaus uses federal funds for their teen pregnancy program. Could that option be explored?”
A community health specialist introduced herself, saying she is also known as “Delete 1. I wanted you to see that I am a real person and have worked for the county for 16 years, 11 years at Public Health. I am asking you to reconsider these cuts. I am willing to take a pay cut and am asking you to consider this option.”
A building inspector introduced himself, saying he “just wanted to meet you before you add me to the growing list of unemployed in Merced County,” expressed the hope that he would not face foreclosure on the house he bought last year. “My coworkers and I have heard rumors of furloughs and wage cuts and we agree these are much more desirable than lay offs. Your decisions today will affect many. Please don’t be politicians. Be the leaders we elected you to be,” he added.
Cheryl Meyer, a US Air Force vet and environmental health department technician said: “My position is 100-percent funded by purchase of new tires by California residents. The county has received tens of thousands over last four years. The program will continue to add revenues to county. This position is as important as fire and police because it also concerns public health and safety … We were notified Friday morning we would be possibly unemployed. Administrator stated they had known this since February. Why weren’t we notified in February? Had I been notified in February, I certainly would not have purchased a home that did not close escrow until May. I made the offer March 3. Mr. Walsh you will almost certainly have another foreclosed home in your district because I will almost certainly not be able to pay for my home. That I have waited and worked and saved for nine years to move into. (Cries) I will have years of work ahead of me to reestablish my good credit. I am a single family household and have no other income to rely on. Mr. Pedrozo, you said last night on TV, ‘What else can we do?’ Talk to your employees and have them be a part of the solution. You will be considering my future as well as the county’s today. I pray that you will throw away those pink slips. When the air clears, those employees laid off will still be feeling the effects of your actions for years to come. Please take into account the faces and lives of those classification numbers we have been assigned. This is a nightmare and I only hope I can wake up. More than half of my life is over and here am I starting it again from the beginning. I never imagined this in a million years. To quote you Mr. Tatum it really is a horrible thing you said, ‘it really is a horrible thing to watch what you’ve built up only to see it torn down.’
“You have no idea sir, you have no idea. (Now sobbing)
“Please reconsider lay offs for a more across-the-board solution. Please talk to us to find out what those solutions are.”
Rosemarie Perez, who works in county health support services, said: “The last time I was before you was to receive my 25-year pin; now I am before you pleading for my job. Currently I am a support services analyst at public health, environmental health division, and on August 14, I found I might lose my job due to two deletions of two jobs with the same title and due to bumping rights. Bumping rights policies need to be changed to reflect years of service to county, not just in a particular classification. I had worked for the purchasing department of General Services for 24 years. One of my duties at environmental health is processing state grants so that revenue can be generated. I bring 24 years of county knowledge and experience to this position. I have been working for the county since June, 1981. My husband is currently unemployed and now I will have no vision or dental for my family. If this is approved, I can’t cash out my sick leave. Were hours reductions or furloughs even considered before this decision to delete over a hundred positions? I was looking forward to joining the pool of retired county workers. I have been working for Merced County for more than 27 years and now all I will receive is a pink slip.”
A landfill hazardous material worker testified that the state Department of Toxic Waste requires two workers on site. If one is cut, the site will be closed, county residents will have nowhere to take hazardous materials. Small businesses and the county will suffer for lack of this place. This will cost the county more through hazmat disposal contractors. This is one of the only places in the county which will dispose of pesticides, flammable substances, solvents, and other toxic substances. Twenty-five households per day visit the site and 400 businesses participate. 
Gloria Sandoval noted the ripple effects of firings. As a high school counselor, she’s already seeing a lot of stress. Too many young people are having to move from one place to another. The remaining people will be overworked, increased stress levels that will create other problems in our community. We have not recuperated from the $2000 less than the national average we receive from the federal government. We need to pressure the congressman. “Please do not make these cuts.”
Board deliberations began with Supervisor Hub Walsh asking CEO Tatum what other considerations were made besides laying off people. Tatum’s response turned into a diatribe against the state, concluding in a menacing tone, “I can’t tell you what to do, obviously, sir. Management will toss in 5-10 percent. This isn’t the first time this has been discussed. You can check the tapes.”
Walsh worked for 25 years in human services administration. He’s the newest addition to the board, having just completed two terms as mayor of Merced. Tatum and the other supervisors appeared uncertain if he was a management team player yet.
Walsh's next question was about limits on travel and acquisitions. Tatum replied that paid out-of-town trips have been curtailed but that staff had reserved $375,000 to repair and maintain several Veterans and community halls close to condemnation.
Walsh then asked if the land fill situation determined by Merced County Area Governments (MCAG). Tatum explained that while supervisors pass budgets on transit and landfill issues, MCAG decides policy. Public Works Director Paul Fillebrown concurred that MCAG’s Solid Waste Policy Board makes final decisions on staffing and that the layoffs are in accord with what the county thinks MCAG “wishes.”
So, the decision on the hazardous waste workers will be made by a selected committee of an appointed board composed of elected officials of a bureaucracy that exists by a memorandum of understanding among jurisdictions to recommend highway projects and to receive federal highway funds passed through the state.
Walsh then asked how are bumping rights are established and or adjusted and about seniority? 
Human Resources Director Morris replied that bumping rights are from contracts we have with the bargaining units (unions).  
Supervisor Kelsey asked when bumping rights were established. She said she was told “before the earth cooled.” 
Tatum interrupted the chairwoman, saying that the quote was “attributed to me... What they would like to know is when they were established. They’d like to have the date when this was first agreed to.” He was perhaps guiding Morris’ response – that he didn’t have that information and would have to review the contracts and regulations before answered. 
Walsh prodded forward, saying he understood that there is some consideration for special district funds reductions and that discussion is forthcoming. 
Tatum replied: “That discussion is not only forthcoming. Your special district funds have been reduced by $35,000 and with this action today. The thought is that you walked up to this number and would walk back down to zero is these years continue.”
Supervisor Mike Nelson said that Adams, the Tax Collector/Treasurer/County Clerk/Voter Registrar/Director of the Revenue and Reimbursements Department, “got up here and complained about the loss of her fiscal manager. Dee, who actually picked these positions for deletion?”
Tatum replied: “The board asked us to make a 10-percent reduction in every department. We asked the department heads to make the reductions. We didn’t suggest positions to be deleted. In order to make her 10 percent she put this position on the list, not willingly, but reluctantly. I give her a great deal of credit as an elected official.” 
Adams explained: “Yes I did request it. The budget office requested that I eliminate five positions. I was given a dollar amount. So, when I looked at seniority, I was looking at two tax clerks. Of course their two salaries didn’t match the fiscal manager. It was a no brainer It cost me many sleepless nights. My staff can concur on that. So, I appreciate the Budget Office sensitivity by letting me determine the person I had to sacrifice.” 
Nelson continued, saying that he could not see in the staff report a waste-tire subvention for the environmental health department, “like the lady said.”
Health Department Director John Volanti did not respond to Nelson’s comment. He said that the he cuts that were made were not according to various grants so the person least senior was laid off not because she was subvented, leaving the public and probably the supervisors to guess where the waste-tire money would be going in the future.
Nelson expressed shock that county workers lose seniority when they change departments, the crux of the bumping rights issue. Tatum explained that that was negotiated by the unions and that’s the way it is.
Nelson said he didn’t necessarily agree with that.
Tatum interrupted him, saying, “That was mutually agreed to by both parties, not just gotten by the unions.” 
Nelson asked: “And sick leave can’t be cashed out? How does that work?” 
Tatum replied: “I think the issue is that if a person retires … if a person leaves and goes to other counties, cities, whatever they’ve gone, when they leave, they can cash in their annual leave vacation but they do in fact lose their sick leave. That’s supposedly one of the benefits you get by staying here forever and a day. You cash in half; the other have goes to your long-range. If you are laid off, Rosemarie is exactly right. I researched it. If you’re laid off a person would lose that sick leave, it would just go away because we say in our rules that they have no cash value.” 
Nelson asked: “So vacation is a vested right and sick leave is not?”
With a chuckle, Tatum said he’d yield to counsel on that.
County Counsel James Fincher said: “That is correct with one caveat. If a person is old enough to retire, they can cash it out. The people not eligible to retire would lose it.”
Supervisor John Pedrozo asked, to huge applause from the public, if the county could still explore the possibility of work furloughs and budget reduction days.
Kelsey scolded the crowd for the cheers.
Tatum replied, “We’ll sit down tomorrow if they’d like. The later date was mutually agreed to. We know generally what it would save us and in safety since you no longer have a hospital.”
Supervisors Jerry O’Banion said, “I specifically remember in November asking if budget reductions could be discussed. It was Kristy. Testimony was heard before this board that there was no interest on the part of the employees of this county to talk about furlough days…I’m not saying that it would save every position because it won’t – no way that it could because of the immense hit that the County of Merced has taken from the State of California. But it could have helped and a lot more if it could have been implemented last January or last July or this coming January. So, as far as I’m concerned, let’s talk about those reduction days or furlough days but remember it’s not going to solve the whole problem and we’ve got the $12-18 million hit from the state and it’s going to come again next year. I have full sympathy for the individuals affected. It hurts to have to make these decisions. I went through this one time before. I voted to close libraries, parks, some of the other issues and eliminating positions and it’s no fun, but we have to keep the county solvent, which requires a balanced budget, but if there were alternatives that could have been broughten forward, they should have been a long time ago,. But we can talk tomorrow if there are some other solutions and the board can reconsider decisions it has made but those decisions have to be made to progress.
Walsh proposed that the board could take a 5-percent cut immediately. This proposal was not taken up with great enthusiasm by the rest of the board.
Kelsey said that if the issue of the bumping rights happened and was agreed to “before the earth cooled,” it’s probably an appropriate time to look at that. I’d sure like to know how you lose your seniority when you take a new position in the county.
She went on to blame the situation on the state reductions and reductions in property taxes, warning that it could take 15 years before our property taxes return to what they were. “This may be a new reality in which we don’t have the income we’ve had in the past.”
O’Banion moved to accept the staff cuts. Chairwoman Kelsey requested the motion be reread and she took a roll call vote before she cast the lone vote against it. Walsh, Pedrozo and Nelson, who had been quite critical of aspects of the policy of force reduction, voted for it. If O’Banion had not moved to approve, the items would have died for lack of a motion.
End Part 1.
Fresno Bee
Most valuable agricultural crop in the Valley? It's water! ...Bill McEwen
http://www.fresnobee.com/columnists/mcewen/v-print/story/1629760.html
Farmers want water for crops, environmentalists want water for fish. Both are destined to end up losers because water always flows -- not downhill, as is taught in school -- but straight to cash.
In the West, suburban development is king, and it appears that nothing will change that fact. For every farmer with dirt under his fingernails, there is another willing to trade in his overalls for a suit and developer's blueprints.
Or for a developer's money.
Need some examples?
The Boswell family drained Tulare Lake, gained control of a large chunk of the Kings River, became the biggest cotton farmers in the world and developed the Arizona retirement town of Sun City. Now the Boswells wants to plant 10,000 homes east of Exeter in Yokohl Valley.
The roots of development giant Castle & Cooke were growing pineapples in Hawaii under the Dole banner. Castle & Cooke has big plans for Rio Mesa in Madera County -- visions underpinned by obtaining water rights from Los Angeles billionaire Stewart Resnick's vast Kern County agricultural empire.
And, now, Sandridge Partners, based in Sunnyvale, has agreed to permanently transfer water rights from its Kings County farm holdings to a water agency in Southern California. The price: $73 million. The water's probable new use: new development in San Bernardino County.
So much for the virtues of tilling the soil.
By the way, you -- the taxpayer -- have subsidized Sandridge Partners for years.
The company, according to Environmental Working Group, a Washington, D.C.-based watchdog, received $6.8 million in farm subsidies from 1995 through 2006, primarily for cotton.
The Sandridge Partners' farm is part of the Dudley Ridge Water District, which, in turn, is a member of the Kern Water Bank. The water bank was begun with $74 million of public investment, and now is controlled by Resnick, the king of pistachios, almonds and pomegranates.
How long before Resnick -- or heirs -- tire of cranking out profits by the acre and get many times richer peddling water by the acre foot?
Here's the deal: Public policy in California long held that growing food and fiber was important. A vast network of dams and canals was put together, mostly on the public's dime, and the San Joaquin Valley bloomed.
But as the demand for residential water has increased and environmentalists have sought protection for wildlife, old policies have given way to new realities.
In the Valley, the water discussion usually is framed as farmers versus environmentalists. But the debate really is three-dimensional, and it additionally involves developers with hopes of turning bare dirt into master-planned communities. The only way their dreams of gated tracts can be realized is by buying up rights to water that once grew almonds, cotton and the like.
Now, you'd be mistaken if you think that the moral of this story is that sometimes it's impossible to distinguish between a farmer and a developer.
My point is much bigger: As water becomes even more valuable west of the 100th meridian, it increasingly will flow toward wealth. And, with California's wealth concentrated on the coast, who will stop the exodus of water from the Valley?
Not the politicians.
And certainly not the Valley's corporate farmers, who know that water -- of all the crops -- is king.
Valley's lawmakers cautious on health-care reform...Michael Doyle
http://www.fresnobee.com/local/v-print/story/1629763.html
WASHINGTON -- San Joaquin Valley lawmakers didn't get much of a break this August recess -- and neither did the health-care reform package now awaiting them on Capitol Hill.
The lawmakers return today after getting an earful last month from constituents worried or just plain confused about the legislation that at last count totaled 1,026 pages. At the very least, the proposal appears badly hobbled coming out of the summer break.
"I think this health-care bill needs a significant amount of alteration," said Rep. Dennis Cardoza, D-Merced.
Cardoza belongs to the House Blue Dog Coalition, whose 52 moderate-to-conservative Democratic members can make or break President Barack Obama's top legislative priority.
The Blue Dogs, whose members also include Rep. Jim Costa, D-Fresno, largely represent the kind of rural districts where big-government skepticism abounds.
Neither Cardoza nor Costa hosted the kind of summertime town hall meetings that in other congressional districts erupted into shouting matches. For that, the two Democrats received some local criticism.
Both lawmakers, though, heard plenty in other events; Cardoza estimated he met with at least 2,500 people in 50 different sessions.
"My views were reinforced by what I heard," Cardoza said.
Costa, too, said he heard from many different people in many different meetings. A common theme, he said, was a desire for more clarity about what the legislation actually does.
"I'm one of the members that want to slow the process down, so that we have a better understanding of what it is we're looking at," Costa said. "I'm not prepared to vote for [the House bill] as it is today."
Both Democrats said they want changes in the bill approved July 31 by the House Energy and Commerce Committee before they can vote for it. Costa, for instance, said he doesn't think a public insurance option is critical for any final bill.
Instead, he leans toward "incremental change" that addresses the portability of insurance and the coverage of pre-existing conditions.
The House bill is a work in progress -- the House committee alone considered roughly 100 amendments. Some won quick approval, like one by Rep. Jerry McNerney, D-Pleasanton, that protects insurance coverage for children younger than 2.
Other, more dramatic, revisions are certain to come.
Republicans, as well as many Blue Dogs, want to reduce the bill's cost, now estimated to be at least $1 trillion over 10 years.
"During August, almost every member of Congress heard the message to slow down, and take our time," said Spencer Pederson, spokesman for Rep. George Radanovich, R-Mariposa.
Radanovich did not hold a town hall meeting in August, though he is considering one in a few weeks.
One of his GOP Valley colleagues who did host a conventional town hall, Rep. Devin Nunes, R-Visalia, knows what to expect.
"There were basically 180 or so really ticked-off people," Nunes said. "I never used to get health-care questions. Now, it's all people want to talk about."
Emboldened, Republicans are trying to corner potentially vulnerable Democrats by associating them with certain health-care phrases and personalities.
In recent days, for instance, Cardoza and Costa both were targeted by Americans for Tax Reform press releases that invoked politically loaded phrases like "aspirin tax" and the names of hot-button liberals.
"Only one week is left before [Cardoza] goes back to Washington to get his arm twisted by San Francisco's Speaker Nancy Pelosi and New York's Charlie Rangel," one press release stated, using language identical to that in an anti-Costa press release.
Stockton Record
More families can afford home purchase
80 percent in Stockton can buy, reports show...Keith Reid
http://www.recordnet.com/apps/pbcs.dll/article?AID=/20090908/A_NEWS/909080313/-1/A_NEWS
STOCKTON - Call it the upside of the housing market downturn.
Eight out of every 10 families in Stockton could afford to buy a home in the second quarter of this year, recent reports on housing affordability show.
High unemployment rates notwithstanding, home buying in Stockton has become affordable for a family earning well below the county's median income. And mortgage payments on an entry-level home rival the cost of renting a home of similar specifications.
Recent reports from both the California Association of Realtors and the National Association of Home Builders/Wells Fargo Housing Opportunity Index show that 80 percent of people in the metropolitan Stockton area - essentially, San Joaquin County - can afford an entry-level home based on their median family incomes, an amazing contrast to October 2005, when affordability rates stood at 11 percent and a median priced home cost $400,000.
The median price of a home in the Stockton area for the second quarter of 2009 was $150,000. The mortgage payment on that amount - including taxes and insurance and based on a 30-year conventional loan with a 4.92 percent adjustable interest rate - would be about $900 a month.
According to the California Association of Realtors, the minimum qualifying income for such a home would equate to $26,600 annually (about $12.80 an hour at a 40-hour-a-week job), less than half of San Joaquin County's median family income of $63,000.
"I talk to a lot of people who have no idea they would qualify for a house right now," said Chris Hake, a mortgage consultant with Lender for Life Mortgage in Stockton. "It's such a different marketplace compared to three or four years ago, when prices were $400,000 or $500,000."
Statewide, 67 percent of people can afford an entry-level home priced at $224,000, the California Association of Realtors reports. To buy a house in that price range, a family must earn about $40,000 annually to make the $1,330 monthly payments.
Lenders warn that these statistics are raw and that high debt-to-income ratios can make it harder for some borrowers to qualify. A buyer would need near-perfect credit and little debt in order to qualify at the Realtors' association's estimated minimum income, said Colleen Stewart of Stockton's Platinum Home Mortgage Corporation.
But that doesn't diminish any optimism.
"With lower interest rates and lower prices, the breakdown and overall payment is a lot less than what people think going in," Grupe Real Estate mortgage broker Stephanie Rodriguez said. "Also, with the market today, it's not unusual for sellers to pay closing costs."
Rodriguez said she believes Stockton is an even better market for entry-level buyers than many other areas. The Realtors' and home builders' reports assume conventional loans, but Stockton is a strong market for Federal Housing Administration-insured loans that only require a 3.5 percent down payment.
To buy a $165,000 home in the Stockton area - July's median sales price for a three-bedroom, two-bathroom house - with an FHA loan, Rodriguez said a buyer would need to have a family income of about $50,000 with a 38 percent debt-to-income ratio. Payments, based on a 5.25 percent interest and a 3.5 percent down payment of $5,775, would be $1,120 a month, including estimated taxes and insurance.
"It really is affordable for a lot of families these days," Rodriguez said. "If you look at the rents for a comparable three-bedroom, two-bedroom house in a decent neighborhood, you're looking at $1,200 to $1,300 a month."
According to the national home builders report, Stockton ranks among the most affordable cities in the Central Valley, trailing Merced's 84.3 percent affordability rate and Modesto's 83.6 percent rate. Fresno lags well behind with a 71.8 percent rate.
San Francisco and San Luis Obispo are among the state's least affordable places to buy a home. With a median home price of $364,000, only 31 percent of homes in San Luis Obispo are affordable to people earning the minimum qualifying income to buy, according to the report. San Francisco has a 26 percent affordability rate.
Indianapolis was the most affordable major housing market in the country, with a near 95 percent affordability rate.
I'm back...Alex Breitler's blog
http://blogs.recordnet.com/sr-abreitler
... with a bursting email inbox.
This statement just flew in in from the Audubon Society, which wants to make sure the Delta's birds are considered in the ongoing water debate:
“No one disputes the idea that the Bay-Delta system is broken and needs to be fixed,” said Graham Chisholm, executive director of Audubon California. “We need to make sure that migratory birds are included in Bay-Delta planning – not just because these birds are an important part of our legacy as Californians, but also to protect the substantial investments taxpayers have already made in this area.”
Nearly everyone now agrees that the Bay-Delta system is in trouble. Tremendous demand for water – as well as drought – is causing shortages and environmental damage. Lawmakers are considering massive changes to the system to improve water supply and improve conditions for imperiled wildlife.
Today, less than 10% of the Bay-Delta’s original wetland and cottonwood willow habitats remain, and the concern is that fixing the Bay-Delta could risk further imperiling the at least 22 bird species from the Bay-Delta listed as endangered, threatened, or of special concern – along with many others whose populations are dramatically reduced. A few of these are the American White Pelican, Western Snowy Plover, Tule White-fronted Goose, Northern Harrier, Western Burrowing Owl, California Black Rail, Greater Sandhill Crane, and the Tricolored Blackbird.
Nevertheless, the Bay-Delta remains critically important for migratory birds, supporting more than 200 different species. The San Francisco Bay Estuary, including the Delta, is the only site along the Pacific Flyway where close to a million shorebirds have been counted in a single day. Up to 50% of the Pacific Flyway’s migrating or wintering waterfowl (as much as 20% of the North American population) depend on habitats in the Bay-Delta. It is the largest estuary on the west coast of the Americas.
Audubon California has identified 18 Important Bird Areas in the Bay-Delta region. These places provide essential habitat for breeding, wintering, and migrating birds.
The increasing demand for water from the Bay-Delta system has the potential of seriously harming these critical bird habitat areas.
“We need to ensure that we emerge from this overhaul process with as much migratory bird habitat that we had when we began,” said Chisholm. “Understandably, improvements to the Bay-Delta will impact bird habitat. But when habitat is lost, we must ensure that it is created elsewhere in the region.”
Audubon California is currently working to ensuring that migratory birds are incorporated into the Bay Delta Conservation Plan process, which is the latest effort to build consensus around what needs to be done in the Bay-Delta.
Indybay
Water Agencies, Enviros and Tribes Unite to Delay Water Bills...Dan Bacher
http://www.indybay.org/newsitems/2009/09/07/18621116.php
One of the largest and most diverse coalitions of water agencies, conservation organizations, Indian Tribes, fishermen and environmental justice groups in California history has assembled to oppose Senate President pro Tem Darrell Steinberg's mad rush to enact a dangerous package of water bills before the end of the legislative session, September 11.
Water Agencies, Enviros and Tribes Unite to Delay Water Bills...Dan Bacher
One of the largest and most diverse coalitions of water agencies, environmentalists, Indian Tribes, fishermen and environmental justice groups in California history has assembled to oppose Senate President pro Tem Darrell Steinberg's mad rush to enact a dangerous package of water bills before the end of the legislative session, September 11.
The 42 groups from both northern and southern California sent a letter to the Water Conference Committee and other members of the Legislature on September 2 stating that "the few days left in this session are simply insufficient to ensure that passage of the package of bills will not result in unintended consequences that could prove even more harmful than the current situation presents."
"The Delta package of bills that is now being considered proposes fundamental changes in California water policy that will require careful and broad consultation to ensure undisrupted implementation," the letter stated. "More importantly, to be successful, the policy will require confidence and buy in from a broad constituency. Rushing this process risks producing unintended consequences that will not benefit California in the long term."
Bill Jennings, executive director of the California Sportfishing Protection Alliance, one of the groups signing the letter, described the water deal as "a combination of the Sorcerer's Apprentice and Faust's bargain with the Devil."
"Not satisfied with simply giving the Governor the power to appoint the majority of a Council that has the power to approve a peripheral canal, bonds and new dams are now part of the equation," noted Jennings.
The letter was preceded by numerous letters by organizations opposing the peripheral canal, including a strongly written letter sent by the Center for Biological Diversity and many fishing groups: http://www.biologicaldiversity.org/campaigns/san_francisco_bay
_area_and_delta_protection/pdfs/Delta_Bill_Package_opposition_
letter.pdf Labor has also joined the battle against the canal and water bond. The United Farmworkers Union, founded by Cesar Chavez and Dolores Huerta, reported that a $1-million donation was made to a political action committee called “United Farm Workers’ Committee to Oppose Statewide Water Bonds," according to the LA Times on September 1. The donation came from the Change to Win Coalition, a national labor coalition including SEIU and the Teamsters Union.
The opposition of groups from throughout the state is accompanied on the local level by a grassroots uprising of Steinberg's constituents and Delta residents. A group of 40 people held a demonstration outside of Steinberg's office on Friday, September 4 in opposition to Steinberg's push for the peripheral canal (http://www.indybay.org/newsitems/2009/09/05/18620933.php). "We are alarmed at how the current package of five water bills is being pushed through the Legislature without consideration for the many concerns of Delta and northern California residents," said Barbara Daly, Delta farmland owner, of Save the Delta. "We are protesting the legislation's ceding of control of our water to only 7 political appointees on a governance committee that could approve the building of a peripheral canal."
Meanwhile, deals are apparently being made behind closed doors regarding the peripheral canal and the future of the West Coast's largest estuary. "I'm informed that the fate of the Delta estuary is being horse-traded in backroom meetings between Lester Snow (DWR), Senator Steinberg, Assemblymember Jared Huffman (D-San Rafael), Senator Dave Cogdill (R-Modesto), Barry Nelson (NRDC), Tom Birmingham (Westlands Water District), Tim Brick (Metropolitan Water District) and Joe Caves (Nature Conservancy," said Jennings.
Saturday and Sunday's legislative meetings over the water bills were canceled and the next meeting will occur at 1:00 PM today (Monday) in room 4203 of the Capitol. Today's meeting will focus on AB 49 (Feuer/Huffman) regarding outstanding issues on water conservation, SB 261 (Dutton/Ducheny), and SB 229 (Pavley) regarding water diversion reporting. The public will be able to comment on the legislation.
What can you do to stop the peripheral canal and delay the water bill package?
First, make phone calls and emails to Senator Darrell Steinberg through the Friends of the River Action Alert to urge him not rush into the kind of potential policy disaster that created California’s unsuccessful and costly experiment in energy deregulation! The link is: https://secure2.convio.net/fotr/site/Advocacy?cmd=display&page=UserAction&id=225
After you make your phone call and emails, please sign the petition against the peripheral canal on the California Sportfishing Protection Alliance (CSPA) Website at http://www.calsport.org.
Here is the letter, starting with the list of organizations and tribes signing on to the letter.
Anahuak Youth Sports
Butte Environmental Council
Calaveras Public Utility District
California Indian Heritage Council
California Sportfishing Protection Alliance
Central Delta Water Agency
Citrus Heights Water District
City of Folsom
City of Roseville
Clean Water Action
East Bay Municipal Utility District
El Dorado Irrigation District
Environmental Justice Coalition for Water
Food and Water Watch
Foothill Conservancy
Friends of the Los Angeles River
Friends of the River
Glenn-Colusa Irrigation District
Heal the Bay
Jackson Valley Irrigation District
Mono Lake Committee
Northern California Water Association
Orangevale Water Company
Organic Sacramento
Pacific Coast Federation of Fishermen's Associations
Planning and Conservation League
Restore the Delta
Sacramento Suburban Water District
San Diego Coastkeeper
San Francisco Public Utilities Commission
San Joaquin County
San Juan Water District
Sierra Club California
Sierra Nevada Alliance
South Delta Water Agency
Southern California Watershed Alliance
Stockton East Water District
The River Project
Tuolumne Utilities District
Urban Semillas
Winnemem Wintu Tribe
September 2, 2009
Honorable Darrell Steinberg Honorable Karen Bass
Honorable Dean Florez Honorable Anna Caballero
Honorable Alex Padilla Honorable Jean Fuller
Honorable Fran Pavley Honorable Jared Huffman
Honorable Dave Cogdill Honorable Kevin Jeffries
Honorable Sam Aanestad Honorable Jim Nielsen
Honorable Bob Huff Honorable Jose Solorio
Dear Water Conference Committee Members:
We the undersigned are pleased to see the Legislature committing its time and staff to addressing the declining situation in California statewide water management. As the hub of California’s engineered water system, the Delta is a critical resource to everyone in the state. As the largest estuary on the west coast of the Americas, the Delta is also one of the most endangered ecosystems in the United States. We stand committed to working with the Legislature and its appointed conference committee through the remainder of this legislative session and beyond to at a solution that improves the health of the Delta.
The few days left in this session are simply insufficient to ensure that passage of the package of bills will not result in unintended consequences that could prove even more harmful than the current situation presents. These Delta bills have not yet been amended with only nine days left.
Please do not mistake our views as being opposed to change. We understand that systemic changes will be needed to fix the Delta. However, we feel that in order to move past the stalemate surrounding the Delta, the Legislature and conference committee must find solutions to the most controversial issues. Unless those are discussed and resolved, the legislation will result in an ineffective package that will result only in a lifetime of litigation and no new water, jobs or protections for the environment.
The Delta package of bills that is now being considered proposes fundamental changes in California water policy that will require careful and broad consultation to ensure undisrupted implementation. More importantly, to be successful, the policy will require confidence and buyin from a broad constituency. Rushing this process risks producing unintended consequences that will not benefit California in the long term.
At this juncture, water is one of the highest priority policy issues for California. It is important that any deal for the Delta promotes real and reliable improvements in the health of the Delta itself and promotes responsible statewide management of our water resources.
Sincerely,
Raul Macias, Executive Director
Anahuak Youth Sports Association
Lynn Barris
Butte Environmental Council
John Ornellas, District Manager
Calaveras Public Utility District
Evon Chambers signing on behalf of:
Randy Yonemura, Project Director
California Indian Heritage Council
Bill Jennings, Executive Director
California Sportfishing Protection Alliance
Dante Nomellini, Manager and Counsel
Central Delta Water Agency
Robert Churchill, General Manager
Citrus Heights Water District
Kenneth Payne, Utilities Director
City of Folsom
Derrick Whitehead, Utilities Director
City of Roseville
Jennifer Clary, Water Policy Analyst
Clean Water Action
Dennis M. Diemer, General Manager
East Bay Municipal Utility District
Thomas D. Cumpston, Acting General
Manager
El Dorado Irrigation District
Debbie Davis, Legislative Analyst
Environmental Justice Coalition for Water
Mark Schlosberg, California Director
Food and Water Watch
Chris Wright, Executive Director
Foothill Conservancy
Shelly Backlar, Executive Director
Friends of the Los Angeles River
Steve Evans, Conservation Director
Friends of the River
Thaddeus Bettner, Glenn-Colusa Irrigation
District
Mark Gold, Executive Director
Heal the Bay
Thomas Hoover, General Manager
Jackson Valley Irrigation District
Jonas Minton signing on behalf of:
Geoff McQuilken, Executive Director
Mono Lake Committee
Donn Zea, President & CEO
Northern California Water Association
Sharon Wilcox, General Manager
Orange Vale Water Company
Organic Sacramento
Zeke Grader, Executive Director
Pacific Coast Federation of Fishermen's
Associations
Charlotte Hodde, Water Program Manager
Planning and Conservation League
Restore the Delta
Robert Roscoe, General Manager
Sacramento Suburban Water District
Ms. Gabriel Solmer, Legal Director
San Diego Coastkeeper
Michael Carlin, Deputy General Manager
San Francisco Public Utilities Commission
Ken Vogel, Supervisor
San Joaquin County
Shauna Lorance, General Manager
San Juan Water District
Jim Metropulos, Senior Advocate
Sierra Club California
Joan Clayburgh, Executive Director
Sierra Nevada Alliance
John Herrick, Manager and Counsel
South Delta Water Agency
Conner Everts, Executive Director
Southern California Watershed Alliance
Kevin M. Kauffman, General Manager
Stockton East Water District
The River Project
Pete Kampa, General Manager
Tuolumne Utilities District
Miguel Luna, Executive Director
Urban Semillas
Mark Franco, Headman
Winnemem Wintu Tribe
cc: Members of the Legislature
Protests Against Peripheral Canal Continue at Steinberg's Office Today...Dan Bacher
http://www.indybay.org/newsitems/2009/09/08/18621249.php
Residents of Sacramento and the Delta will be picketing in front of Steinberg's office on 1020 N Street, across from the south side of the State Capitol, from 10 a.m. to 2 p.m. on Tuesday, September 8 and Wednesday, September 9 to oppose Steinberg's mad push for the peripheral canal.
Media Advisory: For Immediate Release, September 8, 2009
Contact: Barbara Daly 916-761-4726
Protests Against Peripheral Canal Continue at Steinberg's Office Today
(Sacramento) Residents of Sacramento and the Delta will continue to hold protests today and tomorrow against the mad rush by Senate President pro Tem Darrell Steinberg to ram a badly-flawed water bill package through the State Capitol against the needs and wishes of his constituents. The protesters will be picketing in front of Steinberg's office on 1020 N Street, across from the south side of the State Capitol, from 10 a.m. to 2 p.m. on Tuesday, September 8 and Wednesday, September 9.
"We are protesting against Steinberg's plan to build a peripheral canal even though Sacramento and Delta residents are completely against this giant government boondoggle," said Barbara Daly, a Delta farmland owner, of Save the Delta. "The backroom deals and politically stacked Conference Committee that have produced the current water bill package are a complete mockery of the democratic process."
Over 40 people from the Sacramento area and Delta held a lively protest in front of Steinberg's office in Sacramento on Friday, September 4 to protest Steinberg's water deal.
Steinberg's constituents are outraged that none of the 14 members of the Water Conference Committee that Steinberg and Assembly Speaker Karen Bass appointed last week are committed to protecting the largest estuary on the West Coast of the Americas. They are appalled that Delta legislators opposed to the canal have been completely excluded from the Conference Committee and the backroom water bill negotiations.
For more information, go to: http://www.indybay.org/newsitems/2009/09/05/18620933.php
Washington Post
AP analysis: Auto industry gains boost some areas...CHRISTOPHER S. RUGABER and MIKE SCHNEIDER, The Associated Press
http://www.washingtonpost.com/wp-dyn/content/article/2009/09/07/AR2009090700790_pf.html
-- Signs of life in the auto industry and an easing of the housing crisis helped reduce unemployment and kept foreclosures flat in some of the nation's hardest-hit areas in July, according to The Associated Press' monthly analysis of economic stress in more than 3,100 U.S. counties.
The latest results of the AP's Economic Stress Index showed joblessness dipped in counties where temporarily closed auto-related plants resumed production in July. Foreclosure rates, meanwhile, slowed in the Sun Belt epicenters of the housing bust. Bankruptcy rates, which respond more slowly to economic shifts, rose slightly.
The average county's Stress score dipped to 10.54 in July, from 10.6 in June. In July 2008, it was 6.94.
The AP calculates a score from 1 to 100 based on a county's unemployment, foreclosure and bankruptcy rates. The higher the score, the higher the economic stress.
Under a rough rule of thumb, a county is considered stressed when its score exceeds 11. In July, 41 percent of counties had stress scores of 11 or higher, the same as in June. A year earlier, only 7.3 percent of counties had scores of 11 or higher.
The five counties with 25,000 or more residents that showed the most improvement from June to July had a heavy presence of auto-related manufacturers: Howard and Miami counties in Indiana, Giles and Warren counties in Tennessee and Tuscaloosa County, Ala.
Auto companies boosted production mainly to replenish depleted inventories. General Motors Corp. and Chrysler LLC restored shifts and reopened factories as the companies restructured and emerged from bankruptcy protection.
The industry also benefited from the government's now-ended Cash for Clunkers program. It provided rebates of up to $4,500 for consumers who traded in gas-guzzling older cars for newer, more fuel-efficient models. The program contributed to a 2.4 percent jump in July auto sales and a 30 percent increase in August.
All three U.S. automakers, along with Toyota and other overseas companies, ramped up production in response to the clunkers program. GM is rehiring more than 1,300 laid-off workers. Ford Motor Co. said it will expand production by 33 percent in the fourth quarter over last year's levels.
Chrysler reopened plants in Howard County, Ind., that employ about 4,000. Howard benefited from the most improved Stress score from June to July, dropping from 23.17 to 18.18. Its jobless rate fell to 14.7 percent from 19.7 percent in June.
"It's nice to see those parking lots refilled," said Jeb Conrad, president of a local economic development group.
The county is also home to a Delphi Corp. auto parts plant that GM has agreed to take over while Delphi struggles to emerge from bankruptcy protection.
Conrad also said Delphi recently received $89 million in federal stimulus money to research electric vehicle technologies.
In Warren County, Tenn., between Nashville and Chattanooga, tire-maker Bridgestone returned to full production in July after furloughing workers for part of June. Auto parts supplier Yorozu Automotive, the county's second-largest manufacturer after Bridgestone, began producing a new line of products. That helped drop the county's jobless rate to 13.5 percent from 16 percent in June.
Money from the Obama administration's $787 billion stimulus package also helped fund road and bridge projects that are employing previously jobless contractors, said Jeff McCormick, the county's director of economic development.
"Nobody is busting the doors down, but it seems like there is a little bit more optimism," McCormick said.
Tuscaloosa, Ala., saw its stress index drop to 12.47 from 14.83 in June, the second-best improvement of all U.S. counties. Mercedes-Benz builds SUVs at a plant in Tuscaloosa that employs about 3,000. The plant had shut down after Memorial Day, then reopened in late June, company spokeswoman Felyicia Jerald said.
"If you drive through, it doesn't feel like we're in a recession," he said. "But the numbers still tell me we've got a way to go to recovery in the automotive sector."
The most stressed counties in July with populations over 25,000 were Imperial County, Calif. (33.37); Yuma County, Ariz. (27.69); Merced County, Calif. (25.24); Lyon County, Nev. (23.92); and Yuba County, Calif. (23.7). Imperial and Yuma also had the nation's highest jobless rates (30.2 percent and 26.2 percent, respectively).
Lyon and Merced counties were in the top five for highest foreclosure rates (8.6 percent and 7.8 percent, respectively).
For a second straight month, Nevada, Michigan and California suffered the most economic distress, with Stress scores of 20.86, 18.3 and 16.3, respectively. North Dakota, South Dakota and Nebraska showed the least distress, with scores of 4.54, 5.27 and 6.17, respectively.
Meanwhile, the foreclosure rate nationwide dipped to 1.49 percent in July, down from 1.51 percent in June, compared with 1.29 percent in July 2008. Growth in foreclosures slowed from June to July in the worst-hit states of Arizona, California and Florida. It fell slightly in Nevada, from 7.4 percent to 7.1 percent.
But Robert Edelstein, a real estate professor at the University of California, Berkeley, warned that foreclosures could rise again, especially after the effect of stimulus spending fades. He especially worries about commercial real estate foreclosures.
"There is some positive (economic) news, but all of (it) has a very lackluster underbelly," Edelstein said. "Any shocks to the system could lead us back down a dark avenue."
CNN Money
WaMu: The forgotten bank failure
The biggest-ever bank collapse didn't lead to chaos, but Americans will pay the price for its unsound lending for years to come...Colin Barr
http://money.cnn.com/2009/09/08/news/economy/wamu.fallout.
fortune/index.htm?postversion=2009090812
NEW YORK (Fortune) -- Washington Mutual is long gone, but its lax lending could haunt us for years.
The Seattle-based institution collapsed in the largest-ever U.S. bank failure last September. WaMu ran out of cash after business customers, unnerved by the implosion of Lehman Brothers, withdrew their uninsured deposits.
After the chaos surrounding Lehman's demise, WaMu was put to rest with little fuss. Regulators seized the nation's sixth-biggest bank on a Thursday night -- a departure from the customary Friday -- and sold it to JPMorgan Chase (JPM, Fortune 500) for $1.9 billion.
The move wiped out WaMu's 56,000 shareholders of record and left bondholders nursing billions of dollars in losses. But the WaMu deal spared the federal deposit insurance fund and thus was, unlike so many federal actions over the past year, an unalloyed positive for taxpayers.
"That was a good outcome," said Chip MacDonald, a banking lawyer at Jones Day in Atlanta. Given the financial panic that followed Lehman's collapse and the rescue of AIG (AIG, Fortune 500), he said, "it could have gone the other way."
Even so, Americans will be paying for some years for the ill-advised loans made earlier this decade by WaMu and like-minded peers such as Wachovia.
Defaults on the exotic mortgages the firms specialized in have been high, and they could rise even further in coming months as payments jump for some borrowers. That should add to the stress on the banking system, in the housing markets and in foreclosure-riddled communities.
"We're still waiting to see how the Wachovia and Washington Mutual portfolios play out," said Brian Olasov, who studies the banking industry as managing director at law firm McKenna Long & Aldridge. "We've got a big bulge in resets still to come."
WaMu and Wachovia, now part of Wells Fargo (WFC, Fortune 500), helped stoke the housing bubble by issuing tens of billions of dollars of so-called option adjustable rate mortgages. Option ARMs, as they are known, were typically made with little or no documentation and allowed borrowers to underpay in early years -- at the expense of much higher monthly payments later.
These loans helped inflate the housing bubble in then-hot markets such as California by allowing borrowers to stretch well beyond their incomes to bet on house price gains.
When the market turned, these loans began defaulting at a rapid clip, leaving the lenders with huge losses. JPMorgan took $31 billion in writedowns when it acquired WaMu, and Wells took a $24 billion hit on its Wachovia loans when it completed that purchase.
The writedowns will limit the damage to the banks. But that may not prevent borrowers from having their loans reset to higher interest rates or "recast" to higher monthly payments, based on the rate at which principal is paid down.
Some $700 billion of option ARMs were written in the U.S. between 2004 and 2007. Most option ARMs are set to recast after five years -- meaning that the first wave of higher payments is hitting borrowers this year.
WaMu -- which wrote $133 billion worth of option ARMs when house prices were at their peak between 2005 and 2007 -- said in its annual report last year that 13% of its option ARM loans are due to recast this year. The bulk of recasts are due to take place between next year and 2012.
Recasts often lead to defaults because the banks' option ARM portfolios embody the worst aspects of the housing bubble.
Wachovia, which acquired its option ARM portfolio in its misguided 2006 acquisition of California thrift Golden West Financial and made the loans under the Pick-a-Pay brand, had $120 billion of Pick-a-Pay mortgages on its books at the end of 2007.
Two-thirds of Wachovia's Pick-a-Pay loans were made in the bubble states of California and Florida, which have suffered from the steepest price declines and the highest foreclosure rates. Two-thirds of borrowers as of Dec. 31 were using the minimum payment option -- the one that results in their paying less than the full amount of interest due and having the balance added to the loan. Six loans in seven were written without documenting the borrower's income or assets.
Option ARMs written by all banks largely share those features, though Wachovia's loans stand out in one important way: they aren't scheduled to recast until they are 10 years old, which should keep low monthly payments in place into the middle of next decade.
Accordingly, Wells Fargo said in its annual report this year that it expects recasts on just $106 million of loans in 2009 and 2010, and $316 million in 2011-2012.
Still, Wachovia was just one player in a once-crowded field that included the likes of Countrywide, now owned by Bank of America (BAC, Fortune 500), and BankUnited and IndyMac -- two of the biggest bank failures of the past two years.
And while officials have been trying to get lenders to modify mortgages to slow the foreclosure surge, real progress has been hard to come by.
"A lot of people are going to be facing payment shock," said Olasov. "There's a lot of troubled real estate debt in the banks, and there's no easy answer."